A recommendation has been made by the Institute of Chartered Accountants of India (ICAI) in the Pre-Budget Memorandum for 2025. Starting February 1st, 2025, a new system of taxation is being introduced for married couples in India. It will allow married couples to file their taxes together as the country faces rising living costs.
This might sound new to many of us, but the system is already in practice in developed countries like the USA and the UK. The purpose of introducing the change is to lower the financial burden on families especially when only one person is earning in the family.
Tax experts are not sure if India will adopt this system in the upcoming budget as it requires a lot of change and time to implement. If the proposal is accepted, the Joint taxation for married couples could be a game changer and one innovative step to streamline the tax system.
Current Tax System in India
As of now, married couples in India file their taxes separately, like any other individual. When it comes to tax filing, every individual is treated as a separate entity. This also includes married couples living under the same roof and sharing household expenses. One can opt for an old tax regime or a new tax regime, which is completely their choice and depends on the income and deductions.
The current tax system in India provides an exemption limit of up to Rs 3 lakh under the new tax regime for every individual allowing each to reduce their overall tax liability.
This system is, however, not beneficial for everybody. In cases where there is only one person in a family to rely on for earnings with no other income sources, the system doesn’t provide much relief.
The ICAI Proposal- New Slab for Joint Taxation Scheme
The ICAI has proposed to provide married couples an option to file their taxes together. A joint taxation system combines their income, providing a higher exemption limit. The exemption limit will be raised to Rs, 6 lakhs, and income tax slabs will be adjusted accordingly.
The new slab for the Joint Taxation Scheme is given below:
- Income up to Rs 6 lakh: No tax
- Income between Rs 6 lakh – Rs 14 lakh: 5% tax
- Income between Rs 14 lakh – Rs 20 lakh: 10% tax
- Income between Rs 20 lakh – Rs 24 lakh: 15% tax
- Income between Rs 24 lakh – Rs 30 lakh: 20% tax
- Income above Rs 30 lakh: 30% tax
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Is Joint Taxation for Married Couple a Gamechanger?
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For Example:
There are two examples where one earns Rs 10 lakhs and the other earns Rs 1 lakh. Under the current taxation, if both of them file the tax separately, the one earning more has to pay the higher tax amount, whereas the one earning less would not pay any tax.
Instead of filing individually, if they file the tax jointly, it brings them to a lower tax bracket and helps them save money.
A surcharge (Additional Tax) will be applied for couples earning more than the above income slab.
- Rs 1 crore to Rs 2 crore: 10% surcharge
- Rs 2 crore to Rs 4 crore: 15% surcharge
- Above Rs 4 crore: 25% surcharge
This surcharge ensures that households with higher incomes contribute more to the tax, providing relief to middle and lower-income families.
Benefits of Joint Taxation for Married Couples
Joint Taxation invites a lot of benefits for married couples. Here’s how:
Standard Deduction: Joint taxation allows both spouses to claim the standard deduction. This helps in reducing the taxable income, individually.
Alternate Minimum Tax (AMT): AMT makes sure that couples with higher income (above 20Lakhs) pay their part of the tax fairly, avoiding deductions or other adjustments.
Higher Exemption Limits: The exemption limit gets doubled in the joint taxation. This reduces the financial stress in the family arising due to high living costs.
Reduced Tax Burden for Single-Income Families: In the single-income family, this system lowers the tax liability.
Global Alignment: The Joint Taxation system is already practised for a long time in developed countries. This aligns India with global practices.
Fairer Tax Burden: The joint taxation eliminates the tax burden for that one spouse earning more by distributing the burden equally for both.
Simplified Tax Filing: The Joint Taxation System allows couples to file a single return with less paperwork with simplified filing and reduces the compliance burden.
Challenges & Concerns in Implementing Joint Taxation System
There are a lot of concerns regarding the implementation of the Joint Taxation System. Following are some challenges that might occur:
Risk of Inequality: As per some experts, this will worsen the existing gender inequalities. In the context of India, it can limit the financial independence of the lower-earning partner, often women who are not the primary earners of the family. It is important to consider that the system does not reinforce traditional gender roles.
Impact on Dual-Income Families: The spouses with similar or high incomes may not benefit from the scheme much. The changes should be made in a way that doesn’t excessively benefit families with single earners at the expense of dual-income families.
Complexity in Implementation: The implementation of Joint taxation requires a lot of changes to be made in the current taxation system addressing exemptions, deductions, and surcharges. New rules need to be created, and it would take a lot of time to ensure it adjusts to the current framework to work smoothly. This can make the process more complex and time-consuming.
Government Revenue Impact: The taxation, while benefiting families, might affect the overall tax revenue collected by the government. This needs to be carefully evaluated so that the government can continue funding public services and welfare programs.
Long-Term Fiscal Sustainability: The long-term impact on India’s fiscal health should be carefully accessed. It is important to make sure that joint taxation does not lead to a shortfall in public revenue in the future.
To Wrap Up
The proposed Joint taxation for married couples could be a game-changer for many Indian households, especially those with a single earner. This will bring a significant shift in the taxation system of India if done right. Joint Taxation offers a lot of benefits like reduced taxes, a simplified filing process, and greater financial relief to families struggling with high living costs.
The government will need to consider a lot of factors before the implementation of this system, as it requires careful planning and changes to the current tax laws. It is however unclear whether this proposal will be adopted in Budget 2025. To get expert assistance in tax-related matters, visit https://corpbiz.io/.
Frequently Asked Questions
What will the new income tax slabs for Joint Taxation look like?
The tax rates are:
– Up to Rs 6 lakh: No tax
– Rs 6 lakh to Rs 14 lakh: 5%
– Rs 14 lakh to Rs 20 lakh: 10%
– Rs 20 lakh to Rs 30 lakh: 15%-20%
– Above Rs 30 lakh: 30%Can a married couple file jointly with a taxable income?
Yes, a married couple can file jointly if they opt for the Joint Taxation system, which combines their taxable income. This allows them to benefit from a higher exemption limit and potentially lower tax rates.
Can the proposal be implemented immediately?
No, it will take time as the current tax system will need significant changes to make Joint Taxation work.
Will Joint Taxation be mandatory for married couples?
No, it will be optional, and couples can choose whether to file jointly or separately.
What is AMT?
Alternative Minimum Tax (AMT) The Alternative Minimum Tax (AMT) is a separate tax system that requires some taxpayers to calculate their tax liability twice—first, under ordinary income tax rules, then under the AMT—and pay whichever amount is highest.
Can this system be implemented in the 2025 budget?
It’s not certain if it will be included in the 2025 budget. The government needs time to assess and implement the necessary changes to tax laws.
What are the income limits for the surcharge?
The surcharge applies as follows:
– Rs 1 crore to Rs 2 crore: 10%
– Rs 2 crore to Rs 4 crore: 15%
– Above Rs 4 crore: 25%
Read our blog: An Outlook on Section 194Q TDS of the Income Tax Act
